Opinion
C.A. No. 19875.
Submitted: October 20, 2006.
Decided: December 12, 2006.
Robert K. Payson, Esquire, Gregory A. Inskip, Esquire, Potter Anderson Corroon, Wilmington, DE.
R. Franklin Balotti, Esquire, Lisa A. Schmidt, Esquire, Michael R. Robinson, Esquire, Richards, Layton Finger, PA, Wilmington, DE.
Richard D. Heins, Esquire, Carolyn S. Hake, Esquire, Ashby Geddes, Wilmington, DE.
Elizabeth A. Wilburn, Esquire, Blank Rome LLP, Wilmington, DE.
Edward P. Welch, Esquire, Nicole DiSalvo, Esquire, Skadden, Arps, Slate, Meagher Flom, Wilmington, DE.
Dear Counsel:
The court has reviewed and considered the parties' submissions in connection with the plaintiffs' motion to transfer this action to the Delaware Superior Court. In part because the plaintiffs have waived their right to a jury trial on the remaining legal claim, and in light of this court's familiarity with the issues involved in the remaining claim gained through the adjudication of two motions to dismiss, I have determined the motion to transfer will be denied. Instead, exercising equity's traditional "clean-up" jurisdiction, the case will remain on this court's docket, where it can proceed promptly through discovery to its ultimate resolution.
I.
The factual and procedural backgrounds of this matter are thoroughly discussed in the Delaware Supreme Court's recent decision that affirmed, in all but one respect, an earlier opinion of this court dismissing the amended complaint. They are summarized here only briefly.
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106 (Del. 2006).
On April 1, 2005, this court granted the defendants' motions to dismiss as to each count asserted in the amended complaint. On appeal, the Delaware Supreme Court affirmed generally but concluded that the amended complaint states a claim for fraud and remanded to this court for trial of that claim. In its opinion, the Delaware Supreme Court observed, as follows:
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 615, 632 (Del.Ch. 2005).
Wal-Mart, 901 A.2d at 117-18. This court had earlier dismissed the amended complaint as time-barred without reaching the defendants' other arguments. Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 2004 WL 405913, at *7 (Del.Ch. Mar. 2, 2004). In November 2004, the Delaware Supreme Court reversed and remanded. Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 314 (Del. 2004) (per curiam).
Finally, there remains a question as to whether Wal-Mart's fraud claim may be heard in the Court of Chancery. There is no fiduciary relationship between the parties, and Wal-Mart seeks damages as its remedy. Although Wal-Mart characterizes its claim as one for equitable fraud, we conclude, for the reasons discussed above, that the Amended Complaint adequately alleges the elements of common law fraud as well. The parties did not address the possibility that only the fraud claim would survive, although the trial court noted:
[E]quitable fraud does not swallow common law fraud because it can only be applied in those cases in which one of the two fundamental sources of equity jurisdiction exists: (1) an equitable right founded upon a special relationship over which equity takes jurisdiction, or (2) where equity affords a special remedy (e.g. rescission or cancellation).
We decline to resolve this question of equitable jurisdiction in the first instance. The Court of Chancery will be able to consider this matter and, if appropriate, transfer this claim to the Superior Court.
Wal-Mart, 901 A.2d at 117.
Wal-Mart, 901 A.2d at 117.
On August 10, 2006, Wal-Mart filed a motion seeking voluntary dismissal of its case pursuant to Court of Chancery Rule 41(a) and a transfer to the Delaware Superior Court pursuant to 10 Del. C. § 1902. In that motion, Wal-Mart took the position that its surviving claim is a legal claim over which this court should refuse to exercise jurisdiction. After a review of the briefing on the motion, the court asked the parties to file supplemental briefs and specifically asked Wal-Mart to attach to its response a proposed amended complaint in the same form it would submit to the Superior Court if its motion were granted.
II.
Wal-Mart argues that, properly read, the Delaware Supreme Court's opinion holds that the amended complaint adequately states a claim for common law fraud only, recognizing that, as found by this court and affirmed on appeal, the facts alleged do not support the existence of any equitable fraud claim since no special relationship exists between the parties and Wal-Mart seeks only damages. Because only a legal claim survived the Delaware Supreme Court's decision, Wal-Mart posits that this court has no subject matter jurisdiction over the remaining dispute. Thus, it argues, transfer to the Superior Court is appropriate under 10 Del. C. § 1902. Finally, Wal-Mart contends that this court should refuse to exercise its discretion to retain jurisdiction pursuant to the equitable "clean-up" doctrine because the case remains at the "outset of litigation" and because Wal-Mart will request a jury trial on the remaining claim if the case is transferred.
Delaware's transfer statute provides:
No civil action, suit or other proceeding brought in any court of this State shall be dismissed solely on the ground that such court is without jurisdiction of the subject matter, either in the original proceeding or on appeal. Such proceeding may be transferred to an appropriate court for hearing and determination, provided that the party otherwise adversely affected, within 60 days after the order denying the jurisdiction of the first court has become final, files in that court a written election of transfer, discharges all costs accrued in the first court, and makes the usual deposit for costs in the second court. . . . This section shall be liberally construed to permit and facilitate transfers of proceedings between the courts of this State in the interests of justice.10 Del. C. § 1902 (2006).
The defendants oppose transfer and argue that an equitable fraud claim survived the Delaware Supreme Court's decision. Thus, they suggest, this court still enjoys general equity subject matter jurisdiction. Alternatively, the defendants say that, even if Wal-Mart's sole remaining claim is one for common law fraud, this court should exercise its discretion to retain this matter under equity's "clean-up" doctrine. Because of this court's familiarity with the complex issues presented and because a transfer would result in wasted time and judicial resources, the defendants urge that this suit remain in the court where it was originally, and voluntarily, brought.
III.
A. Wal-Mart's Only Remaining Claim Is A Legal Claim For Common Law Fraud
As a result of the decision of the Delaware Supreme Court, only one cause of action now remains in this case. Despite the defendants' insistence that this surviving claim is equitable in nature, that court's opinion clearly meant to preserve Wal-Mart's claim for common law fraud. As this court observed, and as the Delaware Supreme Court emphasized on appeal, equitable fraud is cognizable only where the claim arises out of a special relationship over which equity takes jurisdiction, or where the complaint seeks a special remedy that only equity can afford.
See generally Wal-Mart, 901 A.2d 106 (affirming this court's dismissal pursuant to Rule 12(b)(6) of Wal-Mart's claims for commercial frustration, breach of fiduciary duties, breach of contract, negligence, indemnification, and a violation of the Delaware Consumer Fraud Act).
Neither circumstance is present here. No fiduciary relationship exists between the parties. Instead, Wal-Mart and the defendants engaged in a series of arm's-length commercial transactions that presented none of the factual indicia normally representative of fiduciary dealings. Thus, a claim of equitable fraud in this case cannot rest upon an "equitable right founded on a special relationship." Similarly, Wal-Mart does not seek a "special remedy" afforded by the equitable powers of this court. Monetary damages, an inherently legal remedy, is the relief sought. Far from recognizing a claim for equitable fraud, the Supreme Court's opinion plainly reads the amended complaint to adequately allege a money damages claim for legal or common law fraud for knowing misrepresentation of fact.
Id. at 114, 117.
Id. at 113-14 (agreeing with this court's analysis and noting that "it is vitally important that the exacting standards of fiduciary duties not be extended to quotidian commercial relationships").
Id. at 117 (observing that "Wal-Mart seeks damages as its remedy").
Id. at 110.
For the aforementioned reasons, the court agrees with Wal-Mart that its sole remaining claim is one for common law fraud.
B. The Court Will Retain Jurisdiction Over Wal-Mart's Common Law Fraud Claim Pursuant To The Equitable "Clean-Up" Doctrine
Having determined that Wal-Mart's complaint adequately alleges a common law fraud claim only, the court now considers whether to retain this case or transfer it to the Superior Court. After evaluating the relative merits of the parties' arguments, the court believes that transfer is not appropriate because of the defendants' well-founded concerns regarding efficiency and judicial economy.
A fundamental tenet of Delaware jurisprudence counsels that the Court of Chancery, because it is a court of equity, "is a court of limited jurisdiction." However, under the equitable "clean-up" doctrine, once this court "is properly vested with jurisdiction over a matter . . . it cannot be lightly divested of that jurisdiction even if a case changes and the relief sought becomes primarily legal instead of equitable." Simply put, once jurisdiction initially is established, this court enjoys substantial discretion in determining "whether to continue to hear the case or to order its transfer to a law court for trial."
Clark v. Teeven Holding Co., Inc., 625 A.2d 869, 880 (Del.Ch. 1992); see also 10 Del. C. § 342 ("The Court of Chancery shall not have jurisdiction to determine any matter wherein sufficient remedy may be had by common law, or statute, before any other court or jurisdiction of this State.").
Fontana v. Julian, 1978 WL 4952, at *1 (Del.Ch. July 12, 1978).
Id. (citing Getty Ref. Mktg. Co. v. Park Oil, Inc., 385 A.2d 147 (Del.Ch. 1978), aff'd, 407 A.2d 533 (Del. 1979)).
Importantly, this court's jurisdiction over a controversy "should ordinarily be ascertained as of the time the complaint is filed and that jurisdiction [should remain] unaffected by post-complaint developments. Thus, even if subsequent events moot all equitable causes of action . . . the court retains the power to decide the legal features of the original claim pursuant to the clean-up doctrine."
Giordano v. Marta, 1999 WL 350493, at *2 (Del.Ch. Apr. 28, 1999) (quoting DONALD J. WOLFE, JR. MICHAEL A. PITTENGER, CORPORATE AND COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY § 2-4 at 81 (1998)); see also Goodrich v. E.F. Hutton Group, Inc., 1991 WL 101367, at *2 (Del.Ch. June 7, 1991) ("Equitable jurisdiction is ordinarily ascertained at the time of the filing of the complaint.").
The court is mindful of the important policy concerns that underlie the "clean-up" doctrine. Among the more salient of these considerations for present purposes are a desire for judicial efficiency, the avoidance of duplicative litigation expenses, and whether the claim at issue is normally one triable before a jury.
Getty, 385 A.2d at 150; see also WOLFE PITTENGER, § 2-4 at 2-73 (2006).
Without question, the court initially obtained subject matter jurisdiction in this case because both the original complaint and the amended complaint "sounded in both equity and law." Moreover, as the defendants rightly emphasize, this case, after four years of motion practice, is hardly on the "threshold of litigation." In that process, the court, through its decisions on two fully-briefed motions to dismiss, has gained familiarity with the relatively convoluted insurance and taxation issues in this case.
Pls.' Opening Br. 3.
See Giordano, 1999 WL 350493, at *2 (emphasizing that "the familiarity of the Court with the background of this matter" argued against transfer).
Wal-Mart argues that interests of fundamental fairness support its motion to transfer so that it may demand a jury for its sole remaining claim. In prior cases, courts occasionally have placed emphasis on whether "the primary issue is one ordinarily triable before a jury" when ruling on a transfer request. Wal-Mart argues that fairness requires a transfer here since, it says, it plans to request a jury trial in Superior Court.
See, e.g., Goodrich, 1991 WL 101367, at *2 (citing In re Markel, 254 A.2d 236 (Del. 1969)); Getty, 385 A.2d at 150-51.
Wal-Mart's announced intention to request a jury trial is surprising for a number of reasons. First, it never made any such demand with respect to the legal fraud claim that it included in both its complaints filed to date. Second, in its opening brief in support of its motion to transfer, Wal-Mart made no mention of its intent to request a jury in the Superior Court. See generally Pls.' Opening Br. Rather, the defendants raised the issue in a footnote in their answering brief. Defs.' Answering Br. 13 n. 13. Third, Wal-Mart then represented in its reply brief that it planned to seek a jury trial, Pls.' Reply Br. 7, but failed to include a jury demand in the proposed Superior Court amended complaint. Pls.' Supp. Br. 1 Ex. B. Viewing this conduct in total, Wal-Mart's newly discovered interest in a jury trial appears to be nothing more than a ploy to justify the transfer of its complaint to a different court.
Wal-Mart's position does not bear scrutiny. For example, in Getty Refining Marketing Co. v. Park Oil, Inc., the court stated that it would consider transferring legal claims to Superior Court if the defendants requested a jury trial on those claims. Further, prior law suggests that when a plaintiff's equitable causes of action disappear and only legal claims remain, a plaintiff's untimely request for a jury trial on the legal claims does not weigh heavily in determining whether a transfer is appropriate.
See, e.g., Giordano, 1999 WL 350493, at *2 (denying a motion to transfer despite the plaintiff's request for a jury trial); Fontana, 1978 WL 4952, at *2 (granting the plaintiff's motion to amend to add a claim of fraud, but deciding that after two years of litigation the plaintiff effectively waived its right to demand a jury trial).
As these prior decisions recognize, considerations of fairness differ when a plaintiff, rather than a defendant, makes a tardy request for a jury trial. When a plaintiff joins legal claims with equitable ones in a complaint and files suit in a court of equity, the defendant typically loses its right to demand a jury "if the facts involved in the equitable counts and legal counts are so intertwined as to make it undesirable or impossible to sever them." If motion practice quickly resolves the equitable claims or if the legal claims are severable, a court should liberally grant transfer or severance when the defendant so requests to protect its right to a jury trial on purely legal claims. Were this not the rule, "a plaintiff could deprive a defendant of a jury trial merely by adding a spurious equitable claim to a demand for money damages and commencing the action in Chancery instead of at law." Such inequity would erode the right to a jury trial as established in article I, section 4 of the Delaware Constitution.
Getty, 385 A.2d at 150; see also Park Oil, Inc v. Getty Ref. Mktg. Co., 407 A.2d 533, 535 (Del. 1979) ("The right to a jury trial, however, applies to an action at law; it does not apply to an equity suit.")
Getty, 385 A.2d at 151.
DEL. CONST. art. I, § 4 ("Trial by jury shall be as heretofore.").
These concerns for fundamental fairness are not as pressing when a plaintiff belatedly requests a jury trial over legal causes of action that it long ago knowingly and voluntarily joined with equitable claims. As instigator of the litigation in the Court of Chancery, a plaintiff has options available at the outset of a case to preserve its then rightful expectation of having a jury decide certain factual issues normally triable by a jury at law. For example, if "the facts involved in the equitable and legal counts are so intertwined" as to make severance impractical, the plaintiff can curtail any perceived hardship by requesting that the Court of Chancery frame a factual issue for an advisory jury.
Getty, 385 A.2d at 150.
Id. at 151-52 (noting, however, that an "advisory jury verdict which may be disregarded by the Chancery judge is not entirely equivalent to a jury verdict at law" and that the "old procedure of framing of issues by the Court of Chancery for jury trial is now probably outmoded").
Wal-Mart did nothing to evidence any concern for its right to a jury trial over the past four years. Because it chose to proceed entirely without regard to any claimed right to a trial by jury, Wal-Mart has waived its right to request a trial by jury on its remaining legal claim, and its newly professed desire for a jury does not enter the court's calculus in determining whether transfer is justified in this case.
Because Wal-Mart has not preserved any right to a jury trial on its claim of common law fraud, the decision to transfer this case to the Superior Court or not is, as a practical matter, of little real consequence. This is particularly true in light of the provision in the Delaware Constitution allowing members of this court to sit by designation on the Superior Court. Had this matter been transferred to the Superior Court, it is plausible to assume that the same judge who has been assigned to this case since it was filed would have been designated to sit on the Superior Court to handle the case to its conclusion.
DEL. CONST. art. IV, § 13( 2) empowers the Chief Justice of the Delaware Supreme Court, upon written request by the Chancellor or by the President Judge of the Superior Court, to designate one or more of the state judges "to sit in the Court of Chancery [or] the Superior Court . . ., as the case may be, and to hear and decide cases in such Court and for such period of time as shall be designated." For application of this procedure, see Monsanto Co. v. Aetna Cas. and Surety Co., 1989 WL 997183 (Del.Super. Sept. 29, 1989).
IV.
For the foregoing reasons, the plaintiffs' motion to transfer this action to the Delaware Superior Court is DENIED. IT IS SO ORDERED. The parties are directed, no later than January 2, 2007, to submit a scheduling order contemplating trial on or before December 14, 2007.